PGIM launches two Buffer ETF series

Rhea-AI Summary

PGIM, the $1.2 trillion global investment management business of Prudential Financial, has launched two new buffer ETF series, the PGIM U.S. Large-Cap Buffer 12 ETF series and the PGIM U.S. Large-Cap Buffer 20 ETF series, listed on the Cboe BZX. The ETFs aim to provide potential downside risk protection with 12% and 20% buffer options, offering investors exposure to the S&P 500 Index with a limited downside buffer against losses over a one-year target outcome period. The ETFs are attractively priced at a 0.50% net expense ratio, making them the lowest cost one-year target outcome buffer ETFs in the marketplace.

Insights

Financial Analyst

PGIM's introduction of buffer ETFs with 12% and 20% protection levels is a strategic move to attract conservative investors seeking to mitigate downside risk while participating in the upside potential of the S&P 500 Index. The competitive 0.50% net expense ratio positions these ETFs favorably in the cost-sensitive market, potentially increasing their adoption among cost-conscious investors. The buffer feature, which limits losses to a specified percentage before the ETF absorbs the remainder, may appeal to those wary of market volatility, particularly in an uncertain economic climate.

Buffer ETFs are structured products that involve options strategies, which may include the purchase of put options to protect against declines beyond the buffer point. The use of these strategies by PGIM Quantitative Solutions suggests an integration of sophisticated risk management techniques. This could potentially result in a more stable investment product, albeit with a capped upside, which may be a trade-off some investors are willing to accept for reduced volatility.

While these ETFs could provide a sense of security during downturns, investors should be aware of the potential opportunity cost associated with capped gains. Moreover, the effectiveness of these ETFs in achieving their target outcomes relies heavily on the precision of the options strategies employed, which are subject to market conditions and the skill of the fund managers.

Market Research Analyst

The launch of PGIM's new buffer ETFs reflects a broader industry trend towards products offering downside protection. This trend is driven by investor demand for investment vehicles that can provide a hedge against market downturns without completely forgoing growth potential. The decision to offer these ETFs at a low net expense ratio could disrupt the competitive landscape of buffer ETFs, compelling other providers to reconsider their pricing strategies to remain competitive.

Given the current market dynamics, characterized by heightened volatility and uncertainty, the timing of this launch could be advantageous. The appetite for such investment products may increase as investors look to safeguard their portfolios against potential market corrections or prolonged bear markets. This could result in significant capital inflows for PGIM, enhancing their market share in the active ETF space.

It is essential to monitor the adoption rate of these ETFs and the performance consistency against their stated objectives. Success in these areas could lead to a broader acceptance of buffer ETFs as a mainstay in portfolio construction, particularly for risk-averse investors. However, it is also crucial to observe how these products perform in various market conditions to assess their resilience and reliability as a protective investment tool.

Economist

The introduction of buffer ETFs by PGIM can be seen as a response to the macroeconomic environment where investors are increasingly concerned about market corrections and economic downturns. These investment vehicles could potentially stabilize the broader financial market by providing structured risk management solutions that may prevent large-scale sell-offs during periods of uncertainty.

However, the performance of these ETFs is intrinsically linked to the health of the underlying S&P 500 Index. In a scenario where the market experiences a severe downturn, the buffer would only absorb a portion of the losses and the effectiveness of these ETFs in protecting investors' capital would be put to the test. Furthermore, in a bullish market scenario, the capped upside could result in investors missing out on significant gains.

Long-term implications for the economy include the possibility of investors becoming more risk-averse, which could lead to a reduction in capital available for riskier investments. This shift could influence corporate financing strategies and potentially dampen entrepreneurial activities that typically rely on higher-risk investments for growth capital.

Attractively priced at 0.50%, PGIM’s new ETFs seek potential downside risk protection with 12% and 20% buffer options

NEWARK, N.J.--(BUSINESS WIRE)-- PGIM,¹ the $1.2 trillion global investment management business of Prudential Financial, Inc. (NYSE: PRU), has launched two buffer ETF series, the PGIM U.S. Large-Cap Buffer 12 ETF series and the PGIM U.S. Large-Cap Buffer 20 ETF series (“the ETFs”), listed on the Cboe BZX. The series will consist of a total of 24 ETFs, with 12% and 20% buffer ETFs launching on a rolling basis the first business day of each month throughout the year.

Stuart Parker, President and CEO, PGIM Investments (Photo: Business Wire)

The ETFs will be offered at a 0.50% net expense ratio, making them the lowest cost one-year target outcome buffer ETFs in the marketplace.²

The Buffer ETFs provide exposure to an ETF that seeks to track the performance of the S&P 500 Index (“the Underlying Fund”), offering investors a defined range of potential outcomes. The ETFs seek to match the return of the underlying fund up to a predetermined upside cap, while providing a limited downside buffer against the first 12% (for the PGIM U.S. Large-Cap Buffer 12 ETF series) or 20% (for the PGIM U.S. Large-Cap Buffer 20 ETF series) of the underlying fund’s losses over a one-year target outcome period. ³

“In times of market uncertainty, our clients are looking for ways to participate in the market’s upside, while tempering downside risks,” said Stuart Parker, president and CEO of PGIM Investments. “Buffer ETFs provide investors with a more narrowly defined outcome range, which can offer more predictability in volatile markets.”

The Buffer ETFs are subadvised by PGIM Quantitative Solutions (PGIM Quant), the quantitative equity, multi-asset and liquid alternatives specialist of PGIM.

“PGIM Quant has been managing options trading strategies for institutional investors for more than 30 years,” said Linda Gibson, CEO of PGIM Quantitative Solutions. “The Buffer ETF series represents yet another enhancement to our suite of offerings for clients who are looking for meaningful upside access while helping to mitigate risk.”

With the launch of the initial Buffer ETFs, PGIM Investments now offers 16 active ETFs, doubling its lineup over the last year.

ABOUT PGIM INVESTMENTS
PGIM Investments LLC and its affiliates offer more than 100 funds globally across a broad spectrum of asset classes and investment styles. All products draw on PGIM’s globally diversified investment platform that encompasses the expertise of managers across fixed income, equities, alternatives and real estate.

ABOUT PGIM QUANTITATIVE SOLUTIONS
PGIM Quantitative Solutions is the quantitative equity, multi-asset and liquid alternatives specialist of PGIM. For more than 45 years, PGIM Quantitative Solutions has helped investors around the world solve their unique needs by leveraging the power of technology and data as well as advanced academic research. As of Sept. 30, 2023, PGIM Quantitative Solutions managed $89 billion in client assets.⁴ For more information, please visit pgimquantitativesolutions.com.

ABOUT PGIM
PGIM, the global asset management business of Prudential Financial, Inc. (NYSE: PRU), is a leading global investment manager with more than $1.2 trillion in assets under management as of Sept. 30, 2023. With offices in 18 countries, PGIM’s businesses offer a range of investment solutions for retail and institutional investors around the world across a broad range of asset classes, including public fixed income, private fixed income, fundamental equity, quantitative equity, real estate and alternatives. For more information about PGIM, visit pgim.com.

Prudential Financial, Inc. (PFI) of the United States is not affiliated in any manner with Prudential plc, incorporated in the United Kingdom or with Prudential Assurance Company, a subsidiary of M&G plc, incorporated in the United Kingdom. For more information please visit news.prudential.com.

¹ The term PGIM as used in this announcement includes PGIM Investments LLC, an indirect, wholly owned subsidiary of Prudential Financial, Inc.

² Source: Morningstar Direct as of Nov. 30, 2023.

³ Before fees and expenses.

⁴ AUM totals shown include assets of PGIM Wadhwani LLP, which is a separate legal entity.

Consider a fund’s investment objectives, risks, charges and expenses carefully before investing. The prospectus and summary prospectus contain this and other information about the fund. Contact your financial professional for a prospectus and summary prospectus. Read them carefully before investing.

Investing in ETFs involves risks. Some ETFs have more risk than others. The investment return and principal value will fluctuate and shares when sold may be worth more or less than the original cost and it is possible to lose money.

The Funds are actively managed exchange traded funds (ETFs) and thus do not seek to replicate the performance of a specified index. ETF shares are not individually redeemable from the Funds. Shares may only be redeemed directly from the Fund by Authorized Participants in Creation Units.

Investment products are distributed by Prudential Investment Management Services LLC, a member FINRA and SIPC. PGIM Quantitative Solutions is a wholly owned subsidiary of PGIM. © 2023 Prudential Financial, Inc. and its related entities. PGIM and the PGIM logo are service marks of Prudential Financial, Inc. and its related entities, registered in many jurisdictions worldwide.

Investment products are not insured by the FDIC or any federal government agency, may lose value, and are not a deposit of or guaranteed by any bank or any bank affiliate.

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Source: PGIM

FAQ

What are the new buffer ETF series launched by PGIM?

PGIM has launched the PGIM U.S. Large-Cap Buffer 12 ETF series and the PGIM U.S. Large-Cap Buffer 20 ETF series.

What is the net expense ratio for the new buffer ETFs?

The new buffer ETFs are offered at a 0.50% net expense ratio.

What is the purpose of the buffer ETFs launched by PGIM?

The buffer ETFs aim to provide potential downside risk protection with 12% and 20% buffer options, offering exposure to the S&P 500 Index with a limited downside buffer against losses over a one-year target outcome period.

Who is the subadvisor for the Buffer ETFs?

The Buffer ETFs are subadvised by PGIM Quantitative Solutions (PGIM Quant), the quantitative equity, multi-asset, and liquid alternatives specialist of PGIM.

How many active ETFs does PGIM Investments now offer?

With the launch of the initial Buffer ETFs, PGIM Investments now offers 16 active ETFs, doubling its lineup over the last year.